In the modern world, developing countries have often looked to industrialized nations for monetary assistance in order to become steadily more developed themselves. These international aids that western nations contribute are typically assumed to be the primary source of cash flow that developing countries receive. However, the sums transferred as aids are hardly enough to sustain countries in need. Far surpassing these aids are transfers known as Remittances, spreading the flow of money into the hands of individual people.
Remittances are funds that are sent to home countries by migrants who have moved abroad, often for job opportunities. The expatriates assist their families back home by transferring them money directly through wire, online transactions or mail. Since the 1990s, remittances have surpassed contributions through financial aid or anything else, with trends continuing to rise most years.
Statistics show that massive amounts of capital are involved. Although remittances are generally a private matter, the World Bank recorded an official sum of over $581 billion sent globally in 2015 (reflecting only what could be recorded). Nearly $350 billion of that went into the accounts of people living in developing countries- although these numbers are hard to document fully due to the level of privacy of transactions.
Of the top ten countries to receive remittances and the top ten whose GDP growth is highest by percent due to remittances, all are developing countries. 24 countries in 2011 had remittances comprise of over ten percent of their total GDP. China and India, the current leaders in remittances received worldwide, have both experienced substantial economic growth in the past few decades. This trend can probably be attributed to the funds they have been receiving in this way.
Remittances have several observable positive effects on nations who receive them. Instead of money loans going from one government to another, money is distributed directly to the hands of the citizens; often the recipients are poor, and the funds they receive assist them in getting out of poverty. Migrants who eventually return to their countries also inherit knowledge from their experiences abroad that motivate them sometimes to develop their own businesses back home, using local opportunities to their advantage.
The cultural integration formed through living abroad also encourages greater understanding of nations and lifestyles, strengthening the bonds between countries. There is mutual benefit for both developing and western nations, as foreign workers mitigate the labor shortage many places are currently experiencing. Therefore, both home and abroad, growth occurs and economies tend to thrive.
Another major benefit remittances have is being used as disaster relief, where international aid is seldom enough to lessen the burden of serious stress due to uncontrollable weather-induced conditions. For instance, the earthquake that occurred in Nepal last year took an extreme toll on peoples’ qualities of life. Tourism, a major source of income for Nepal, drastically dropped as many feared visiting the area.
Damage caused by natural disasters requires a lot of infrastructure to be rebuilt. In addition, businesses face the threat of failing electricity. Bankruptcy also remains a constant problem, straining what funds the government can provide. Remittances offer stability to local people that have been affected by disaster, providing enough income for food, clothes, shelter and savings in case conditions take a long time to improve.
There are several challenges that hinder the fluidity of remittances. Some claim that the money received is not a sustainable method of retaining growth regionally, instead harbouring a dependency on wealthier nations. If the supply flow were stopped, countries concerned could experience a period of crisis. This kind of situation could realistically be on the horizon, as falling oil prices and weakening economies in large contributors have already shown stresses.
Conditions of migrant workers is also a constant concern. Some people work for very long hours under poor standards, and leave their families behind in order to provide such funds for them, sometimes forcing grandparents to act as primary caregivers. Workers must go where labour is in demand and also fit criteria for specific jobs available, which is subject to change with little security for migrants.
Another challenge expatriates face are the fees that transfer systems demand- which have the monopoly because they are the only secure method of sending consistent sums of money long distances. As Akram Putrus of Niagara Falls, Canada recalls, “Transfer fees have been one of the greatest barriers to sending money back to families, and often influence people to consider alternative methods.” He explains that wealthier acquaintances originating from the same city would bring over large sums of money from various relatives when on visits to the native country, bypassing fees and documentation.
These methods were of course risky, required a lot of trust and left large gaps between sending times. “If you were to send money home thirty years ago using a method like that, it could only be twice a year at most. So you had to be prepared with one large sum, and find someone very reliable to make sure your family received it.” Akram, from Basra, Iraq, explains.
The G8 has been attempting to lower these costs through negotiations or setting up competitive prices between companies, forcing them to lower rates to stay desirable. Some current rates looming above 20% will be ideally lowered to 5% globally. This frees up billions of dollars into the pockets of those most in need as opposed to opportunistic companies.
New digital service companies such as TerraPay show the most potential in modernizing the international transfer world. Remittances will be more convenient, safer and gradually have more competitive rates as number of companies increase. More than half of the world’s countries now offer mobile and digital transfer services. Digital services not only charge less per transaction- they also make impulse transfers and funds of lower denominations possible.
“The future of digital remittance transfers definitely looks optimistic to me.” Akram infers. “It’s secure, efficient and a lot more affordable than the expenses we’d face thirty years ago. People’s families can rely heavily on this money, so why not strengthen its capabilities? It can make it possible for relatives overseas to afford both good food and rent for the month.”
Remittances will soon hopefully function on transparency and cooperation under reasonable charges set through mutual understanding. The digital age of money transfer further increases a connectedness between countries of the world and the resources within them. Although challenges are still looming, the future could not look brighter for the support of immigrants and their families.